Most certainly is on everybody’s minds is that the ICO space hasn’t been that kind lately, especially in the last six months, and we’ve seen a lot of blood bath out there. This is mainly due to the fact that many ICO projects come with a whitepaper where they present information that looks great in theory, but the offering is not backed by anything tangible. This way, they created a bad name for all Initial Coin Offerings, and investors are more cautious. The old school entrepreneurs are used to projects where they are able to touch, feel, and see what they invest in, but this doesn’t mean they are not open to new ways of implementing business. Old school thinking still brings results, but coupled with technology will really revolutionise business and reduce costs significantly.
Blockchain is not the Nirvana for everything, is more about you doing something creative, but it can help in many ways. By using blockchain, you cut out a lot of the middlemen bringing speed, efficiency, reducing costs, agents fees, and legal fees. Tokenizing tangible assets like real estate, arts, gold or diamonds can add credibility to any project, but the authorities need to regulate it as soon as possible in order to offer investors the trust they need. Governments need to create the right environment for ICO projects, but sometimes disruption will make the law rather than buddying up, as using the traditional ways won’t change anything and you won’t really create innovation.
Maybe a hybrid token will come out and there will be rules and regulations around it, unlike the Wild West that happens as we speak, when everybody can write a whitepaper and collect millions based on it. Or maybe governments will see the benefits brought by blockchain and they will regulate and implement it. The real big investors and institutions haven’t gotten into it yet, so they try to keep it as low key as possible, as it’s interfering with their interests. Governments put a lot of fear around it and also the big players that are defending their own revenues are not very receptive to it. When your income is in dollars, you want the dollar to do well, and tokens are seen as a threat. They are out of their comfort and investment zone and this is the reason why the legislation of tokens doesn’t taking off as it should.
They create fears to protect their current incomes and their future pensions. Governments, banks, REITs are afraid that we eat their lunch, hence the fear they plant around virtual coins. Cryptotrading and digital banks already cut a big slice from their cake and that is disturbing for the big guys, as the investor pays for their big glass buildings and their salaries. They need an army to manage their services, but technology cuts the costs and brings more return to the investors, hence their objections against tokenization.
If you put your money in a pension fund, you are the last person that benefits from your investment, after every stakeholder takes a slice. What blockchain and smart contracts do is give the investors their returns first, before all the other parts involved in the process get their share of the profit. In the traditional process, there are too many stakeholders involved that take too many cuts in between.
An important principle is putting your own skin and finances in the game if you believe in what you do. This way, your project becomes more credible and investors have the guarantee that you are not doing an ICO to collect funds and then run away in a country with no extradition treaty and enjoy a king life spending their money. Regulations or not, if you believe in what you do, first you will put your own finances in there and then ask for investments from others. Investors look for recognition of ownership of an asset, but they also look for serious people to partner up with. If serious people that add credibility to a business project work together, there is no doubt that tokens will have an amazing future. People involved in a project are as important as the technology used and the valued added.
Some governments (like Dubai) already embraced blockchain and plan to put all the official documents on the block, which is a huge step towards regulation – the only missing piece in the ICO process. There are many challenges for the legal validity of financial instruments used in the blockchain and we don’t know when we’ll see blockchain as a valid regulatory registry, but despite all the issues encountered on the way, tokens are here to stay.
The elements put on the distributed ledger need to be controlled based on KYC, AML and personal data protection, this way bringing more trust for future tokens. People become more and more aware of the benefits that technology can bring and the future of tokenization seems full of possibilities. Nobody has a crystal ball to see what will happen in a few years, but if the current ICO climate will cut all the projects that don’t add any value and promote only serious businesses, tokens will have to be regulated and adopted as soon as possible.
Author: Mru Patel, Partner and COO of Flash Group, CEO of Sapian Capital